How to analyze the prospect of an industry?

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In the eyes of some commercial investors, the best industrial analysis tool so far is the five-force analysis model put forward by American management master Michael Porter. It analyzes the attractiveness of an industry from five dimensions: the threat of new entrants (potential entrants), the threat of substitutes, the bargaining power of upstream suppliers, the bargaining power of downstream buyers and the competitive intensity of enterprises in the same industry.

For example, after entering the mobile phone industry, Luo Yonghao will compete with many existing industries, such as oppo, Xiaomi and Huawei. On the other hand, it will also face the threat of potential entrants, such as some up-and-coming brands of pepper and mango mobile phones. As consumers, they may choose to use old mobile phones instead of smart phones, or use tablets, which is the threat of alternative services. To produce mobile phones, it is necessary to purchase motherboards, batteries and other hardware. If the demand is large, we have the strength to bargain with them, which means that the bargaining power of suppliers is weak. If the supplier provides unique technology that other suppliers can't replace, then the supplier has strong bargaining power and the leading power is more in the hands of the supplier. If the buyer needs to purchase in large quantities, the bargaining power of the buyer is strong, if the buyer buys the unique products of the enterprise, the bargaining power of the buyer is weak, and if the buyer can produce the products by himself, the bargaining power will also be enhanced.

Emphasize your role and judge its bargaining power, because there are five forces competing in any industry.

I. Entry threat of potential entrants

Everyone wants to join the business and share the cake. As Marx said, it is crazy to make a profit of 50%. If the profit reaches 100%, it will prompt people to challenge the rules; If the profit can reach 300%, people will be desperate to squeeze their heads in, and profit is a signal to investors.

1. Entrants will carve up the original market share and get some business. For example, Luo Yonghao's hammer mobile phone, although not an industry giant, will still carve up the mobile phone market.

2. Entrants reduce market concentration, thus stimulating competition among existing enterprises and reducing the price-cost difference (profit).

Second, the substitution threat of substitutes.

1. Direct product substitution. Replace one product with another, such as changing Longjing into black tea.

2. Indirect product substitution. That is, the two products have the same function and are not directly replaced. For example, replacing tea with coffee, both of which can refresh people, are often threatened by different fields. Kodak film has never thought that it will be replaced by mobile phones, and has always been vigilant against other enterprises in the industry.

Products with high substitute value gain competitive advantage.

Third, the bargaining power of suppliers and buyers.

1. Concentration (market share) or business volume of the buyer (seller):

(1) Buyers have high concentration and strong bargaining power. Miniso, a famous and excellent product, is essentially a modern version of "Ten Yuan Store". Through a large number of stores, goods distribution, large purchases, and negotiations with suppliers, the price is minimized. Only one product and several railway wagons are bought, and the price difference is very big, so its bargaining power is very strong.

(2) High concentration of suppliers and strong bargaining power. High concentration means that the products are excellent and of high quality, and the products produced are unique, such as photoresist and chips. Huawei didn't have chip core technology before, and all the mobile phones it produced were equipped with Qualcomm chips. The dominant position is in Qualcomm's hands, and Huawei's bargaining power is weak.

2. Degree of product differentiation and asset specificity:

(1) Suppliers have differentiated products and strong bargaining power. For example, suppliers produce a variety of products for consumers to choose from. Some products are priced high, while others are priced low, so you can choose freely. Suppliers have standardized products and weak bargaining power. If everyone produces ordinary masks, we can only improve our competitiveness by lowering the price. But if a company produces both ordinary masks and N95 masks, its bargaining power will be stronger.

(2) The supplier's products are highly specialized and have strong bargaining power. For example, cigarette production lines sell the produced tobacco leaves to tobacco companies, while there are not many cigarette production lines in China, so cigarette production line companies have strong bargaining power. Another example is sewing machine enterprises. Sewing machines are no different from those produced by other enterprises, and there are a large number of sewing machine enterprises, all of which are standardized and homogenized products with weak bargaining power and strong bargaining power for customized products.

3. Vertical integration:

(1) backward integration: closer to raw materials and suppliers, stronger bargaining power. For example, car companies need a lot of steel to make cars. If they have their own steel mills (raw materials), their bargaining power is stronger.

(2) Forward integration: moving closer to consumers. If steel enterprises have the strength, they can enter automobile enterprises and write their own automobile novels, regardless of whether others buy steel or not, and their bargaining power is stronger.

4. Degree of information mastery: The more buyers know about market information, the more information they have, and the better their position and bargaining power.

Fourth, the competition of existing enterprises in the industry.

For example, the war between Didi and Uber, the war between Meituan and Hungry are all wars between enterprises in the industry for market share. Through price competition (such as the price war of Didi La Capital, issuing subsidy vouchers), advertising war, product introduction, increasing services to consumers and so on.

Any enterprise entering the existing industry is bound to face the competition of existing enterprises.

Limitations of five-force model

Limitations:

(1) Static rather than dynamic. The market situation is changing rapidly, and every day is a new look. Perhaps today's danger will become tomorrow's opportunity, which is to analyze the current static situation of the company.

(2) Not suitable for non-profit organizations. Non-profit organizations are not intended to seize the market, but to benefit the society and provide more welfare assistance, so they are not applicable.

(3) It is an ideal state. It is a static situation, and it is often a subjective thinking based on the current situation.

(4) Strategists can't know all the information of the industry. Information asymmetry exists in any industry. Even senior industry professionals and entrepreneurs can't know all the information of the industry, such as the composition of raw materials, preference groups and so on.

(5) Underestimated the long-term cooperative relationship between enterprises (cooperation is not based on cost and market position). When the cooperation of any enterprise faces conflicts of interest (such as uneven interests), the cooperative relationship will break down.

(6) The consideration of competitive factors is not comprehensive.

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